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Pollution, Mortality and Optimal Environmental Policy

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  • Goenka, A.
  • Jafarey, S.
  • Pouliot, W.

Abstract

We study pollution, mortality and growth in an overlapping generations economy with uncertain lifetimes. Economic activity creates pollution: the stock of pollution has a negative effect on life expectancy while higher income (proxying either for better nutrition and immunity or for better availability of public health) has a prophylactic effect on mortality. These counteracting effects can make the growth-survival relationship non-concave and lead to multiple steady states and a poverty trap. An increase in exogenous abatement taxes can increase the basin of the poverty trap. We study a dynamically consistent sequence of secondbest abatement taxes. The optimal tax is shown to be a non-homogeneous and increasing function of the current capital stock with the optimal tax zero for low levels of capital. The feedback effect from the capital stock to the optimal tax can make optimal abatement policy an independent source of non-linearities leading to non-existence and multiplicity of steady states, as well as oscillations around some steady states when there are none under exogenous taxes.

Suggested Citation

  • Goenka, A. & Jafarey, S. & Pouliot, W., 2014. "Pollution, Mortality and Optimal Environmental Policy," Working Papers 15/11, Department of Economics, City University London.
  • Handle: RePEc:cty:dpaper:15/11
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    References listed on IDEAS

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    Cited by:

    1. repec:kap:enreec:v:68:y:2017:i:1:d:10.1007_s10640-017-0155-2 is not listed on IDEAS
    2. repec:kap:enreec:v:68:y:2017:i:3:d:10.1007_s10640-016-0041-3 is not listed on IDEAS
    3. Wang, Min & Zhao, Jinhua & Bhattacharya, Joydeep, 2015. "Optimal health and environmental policies in a pollution-growth nexus," Journal of Environmental Economics and Management, Elsevier, vol. 71(C), pages 160-179.
    4. Aditya Goenka & Saqib Jafarey & William Pouliot, 2012. "Pollution, Mortality and Optimal Environmental Policy," Discussion Papers 12-05, Department of Economics, University of Birmingham.
    5. Nguyen Than Dao & Ottmar Edenhofer, 2014. "On the Fiscal Strategies of Escaping Poverty-Environment Traps (and) Towards Sustainable Growth," CESifo Working Paper Series 4865, CESifo Group Munich.
    6. Lucas Bretschger & Alexandra Vinogradova, 2017. "Human Development at Risk: Economic Growth with Pollution-Induced Health Shocks," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 66(3), pages 481-495, March.
    7. Torben M. Andersen & Joydeep Bhattacharya & Pan Liu, 2016. "Resolving Intergenerational Conflict over the Environment under the Pareto Criterion," CESifo Working Paper Series 6053, CESifo Group Munich.

    More about this item

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development
    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth

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